GRAND RAPIDS, MI -- As Calvin College works to trim $115 million in long-term debt, investments meant to pay down the sum – but which have instead delivered smaller than expected returns – have come under scrutiny.

Among them: a group of investments managed by the Fuller Foundation. As of last June, the California-based firm held Calvin investments valued at $49.4 million.

But while administrators have pointed to investments managed by Fuller as drawing less than desired results in recent years, the foundation has drawn the attention of the Calvin community for another reason. Gaylen Byker, who retired as Calvin’s president in June, served on Fuller's board of directors.

Some have questioned if it was a conflict for Byker to serve as Calvin’s president while sitting on the board of a foundation that managed a portion of the college's investments.

Gaylen BykerCourtesy

Current Calvin College President Michael Le Roy said he’s heard similar inquiries. But after checking with the foundation, he said he found no evidence a conflict existed.

“He had no role in directing investments at the Fuller Foundation,” Le Roy said of Byker. “The administrators of the foundation told me they have no evidence of impropriety, and they don’t see any conflict of interest there whatsoever.”

Forms filed with the IRS in 2011 by Fuller list Byker as one of 11 directors on the institution’s board. He received no compensation for his work, which amounted to about one hour per week, documents show.

Byker, who became Calvin’s ninth president in 1995, declined to comment.

“It is not appropriate for me to comment in a public forum on what are very complex and sensitive issues for the college,” he said in a statement. “As would be the case with any former president, however, I am available to the college and its current administration to provide whatever information they may require on these or any other matters.”

Long-term debt at Calvin grew to $115 million between 1997 and 2012, as investments meant to pay down the sum generated smaller than expected returns, and the college spent more money than it had on construction projects and real estate, according to a recently released report by the college.

The college pursued a strategy in which it borrowed to finance construction projects. Financial gifts received in capital campaigns were used to fund investments, with the hope that the investments would generate returns to pay off the debt while also yielding additional revenue. Administrators said most but not all donors knew the college was pursuing the strategy.

The investments didn’t yield high enough returns to make the strategy work, in part because some investments were used to cover higher than expected construction costs rather than future debt payments.

Calvin’s investments in the Fuller Foundation – largely classified as alternative investments or hedge funds – grew in some years but shrank in others.

In 2009, the investments lost $13.5 million, college financial statements show. The next year, they gained $2.2 million, followed by a $4.9 million gain in 2011. In 2012, the investments lost $1.3 million.

A majority of Calvin’s investments with Fuller are classified as Level 3 investments, financial statements show. Such investments are difficult to value and are sometimes considered illiquid, meaning they’re not able to be quickly sold.

Thomas Harbolt, executive director of the Fuller Foundation, said Byker’s position as a director did not present a conflict because Byker didn’t oversee Calvin’s investments.

“There’s an investment committee here that has ultimate authority for investment decisions, and Mr. Byker has not served on that,” he said.

Harbolt also said no client investments were used when the Fuller Foundation in 1995 purchased a stake in an entity – Asia-Pacific Refinery Investment LP, or APRI LP – with ownership ties to Byker.

Filings with the IRS show that Fuller has a 65 percent ownership stake in APRI LP. APRI LP was later allocated shares in InterOil Corporation, which was founded in 1997. Byker is chairman and board member at InterOil, an energy company whose work primarily focuses on the Southeast Asian nation of Papua New Guinea.

“We make different investments with our own endowment dollars that are completely separate from any kind of client accounts, and that’s where the funds did come from that relate to that investment,” Harbolt said. “It would have nothing to do with Calvin College.”

Westlake Securities, an investment banking and financial advisory services firm that has recommended the purchase of InterOil stock to clients, reached out to InterOil about its relationship with the Fuller Foundation after details of the relationship surfaced.

In a statement to Westlake, InterOil said: “The Fuller Foundation has owned an interest in Asia Pacific Refinery Investment, LP (APRI LP) since 1995, while the refinery was still in Alaska, and therefore an interest in certain founding shares in InterOil Corporation (IOC) which where were allocated to the partnership on Incorporation of IOC in 1997.”

It went on to say: “At no time did the foundation invest any of Calvin College’s funds (or those of any other client) in shares in IOC (InterOil Corporation). All shares acquired in IOC by the Foundation were acquired with its own capital.”

Judy Nadler, a senior follow on government ethics at Santa Clara University, said Byker’s presence on the board would not be considered a conflict of interest as long as he recused himself from any decisions that affected the college.

“The fact that he served on the board is not necessarily a problem,” she said. “However, it would be of concern if he voted on any proposals that directly benefited the college. That could be certainly seen as a conflict of interest.”